Emtici Engineering Ltd., Anand V. The ACIT.,Anand Circle, Anand

ITA 551/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9407 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-12-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 01-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: M K PATEL
• Keywords: Business income; Depreciation; Earning of tax free income; Proportionate interest; Retrospective amendment; Fair market value; Unabsorbed depreciation
• Section: 143(3); 142(1); 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD BEFORE S/SHRI KUL BHARAT, JM, & MANISH BORAD, AM . ITA NO.821/AHD/2010 ASST. YEAR: 2002-03 & ITA NO.551/AHD/2013 ASST. YEAR 2002-03 EMTICI ENGINEERING LTD., ANAND-SOJITRA ROAD, VALLABH VIDYANAGAR. VS. ACIT(OSD). ANAND CIRCLE, ANAND. APPELLANT RESPONDENT PAN AAACE 4642F APPELLANT BY SHRI M. K. PATEL, AR RESPONDENT BY SHRI DINESH SINGH, SR.DR DATE OF HEARING: 14/12/2015 DATE OF PRONOUNCEMENT: 29/02/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THESE TWO APPEALS FILED BY THE ASSESSEE NAMELY IT A NO.821/AHD/2010 IS DIRECTED AGAINST THE ORDER OF LD . CIT(A)-IV, BARODA DATED 1.1.2010 FOR ASST. YEAR 2002-03 FOR WH ICH ASSESSMENT WAS FRAMED U/S 143(3) OF THE IT ACT, 1961 (IN SHORT THE ACT) BY ACIT(OSD), ANAND CIRCLE, ANAND ON 30.03.2005 AND IT A NO.551/AHD/2013 IS DIRECTED AGAINST ORDER OF CIT(A) -IV, BARODA DATED 21/12/2012 FOR ASST. YEAR 2002-03 WHICH WAS P ASSED AGAINST ITA NO. 821 & 551 EMTICI ENGINEERING LTD. ASST. YEAR 2002-03 2 ORDER U/S 271(1)() OF THE ACT DATED 28.3.2011 PASS ED BY ACIT, ANAND CIRCLE, ANAND. 2. THESE TWO APPEALS ARE FOR ASST. YEAR 2002-03, OU T OF THEM ITA NO.821/AHD/2010 IS IN RELATION TO QUANTUM ISSUE WHE REAS ITA NO.551/AHD/2013 IS IN REGARD TO PENALTY IMPOSED U/S 271(1)(C) OF THE ACT. 3. FIRST WE TAKE UP ITA NO.821/AHD/2010. CONCISE G ROUNDS OF APPEAL ARE AS UNDER :- 1. THAT ON FACTS AND IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.3,58,015/- ATTRIBUTABLE TO INVESTMENT IN SHARES . 2. THAT THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS, IN CONFIRMING THE ADDITION OF RS . 3,50,000/ - MADE ON ACCOUNT OF UNACCOUNTED SALES . 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND ANY GROUND OF APPEAL. . 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A LIMITED COMPANY DERIVING INCOME FROM PROPERTY AND AGENCY COMMISSION ON SALES OF PRODUCTS OF ASSESSEES SISTER CONCERNS. RETURN OF I NCOME WAS FILED FOR ASST. YEAR 2002-03 ON 30/10/2002 DECLARING AN INCOME OF RS.49,61,407/- ALONG WITH AUDIT REPORT U/S 44AB OF THE ACT. THE RETURN WAS PROCESSED U/S 143(1) ON 11/02/2003. THEREAFTER ON 8/9/2003 THE ASSESSEE REVISED THE RETURN OF INCOME SHOWING TOTAL INCOME AT RS.NIL AFTER SETTING OFF OF UNABSORBED DEPRECIATION OF RS.49,61,407/-. ITA NO. 821 & 551 EMTICI ENGINEERING LTD. ASST. YEAR 2002-03 3 THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED ALONGWITH Q UESTIONNAIRE AND SERVED UPON THE ASSESSEE. VARIOUS DETAILS AS REQUIR ED BY ASSESSING OFFICER WERE FILED DURING THE ASSESSMENT PROCEEDING S AND ASSESSMENT WAS COMPLETED ON 30.3.2005 AFTER MAKING ADDITIONS OF RS.14,67,097/-. THE ISSUE IN THIS APPEAL RELATES TO ONLY TWO ADDITIONS WHICH ARE AS FOLLOWS :- 1. ADDITION ON ACCOUNT OF UNACCOUNTED SALES OF RS.3 ,62,747/- 2. PROPORTIONATE DISALLOWANCE OF INTEREST RELATING TO INVESTMENTS MEANT FOR EARNING EXEMPT INCOME OF RS.3,58,015/- 5. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE CIT(A) WHEREIN THE FIRST APPELLATE AUTHORITY GAVE PART RELIEF FOR THE ADDITION ON ACCOUNT OF UNACCOUNTED SALES BY RESTRICTING THE ADDITION TO RS .3,50,000/- IN PLACE OF RS.3,26,747/- MADE BY ASSESSING OFFICER AND CONF IRMED THE DISALLOWANCE ON ACCOUNT OF INTEREST OF RS.3,58,015/ - MADE ON ACCOUNT OF PROPORTIONATE INTEREST ATTRIBUTABLE TO I NVESTMENT IN SHARES. IN REGARD TO THE ADDITIONS REFERRED ABOVE AT RS.3,6 2,747/- FOR UNACCOUNTED SALES AND RS.3,58,015/- ON ACCOUNT OF P ROPORTIONATE DISALLOWANCE OF INTEREST ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 6. FIRST WE TAKE UP ADDITION ON ACCOUNT OF UNEXPLAI NED SALES. THE LD. AR SUBMITTED THAT DURING THE YEAR ASSESSEE HAS SOLD THE STOCK ITA NO. 821 & 551 EMTICI ENGINEERING LTD. ASST. YEAR 2002-03 4 WORTH RS.8,05,578/- (BEING BROUGHT FORWARD FROM LAS T YEAR) AT RS.4,42,831/- AND DETAILS OF ITEM-WISE SALE IS AS U NDER :- A) SALE OF CASTINGS RS. 4,650/- B) SALE OF SCRAPS RS. 41,700/- C) SALE OF CONSUMABLES STORES RS.3,96,481/- LD. AR FURTHER SUBMITTED THAT STOCK COSTING RS.8,05 ,578/- WAS OLD STOCK AND DUE TO WEAR AND TEAR FAIR MARKET VALUE OF STOCK WAS LESS THAN ACTUAL COST PRICE. FURTHER OUT OF TOTAL SALES OF RS.4,42,831, THE SALE OF RS.41,700/- WAS MADE TO M/S CRYSTAL ENGINEE RING AND REMAINING STOCK WAS SOLD TO SISTER CONCERN M/S KANI SHA STEELS FOR RS.4,01,131/-. LD. AR FURTHER SUBMITTED THAT COMPLE TE ITEM-WISE DETAILS OF THE SALES OF RS.4,42,831/- WERE SUBMITTE D DURING ASSESSMENT PROCEEDINGS INCLUDING DESCRIPTION OF ITE MS. DETAILS OF PARTIES TO WHOM SOLD ALONG WITH JUSTIFICATION REPO RT OF WORKS MANAGER AND IT WAS FACT THAT SOLD GOODS WERE OLD AND WERE L YING FOR MORE THAN THREE YEARS AND NON-MOVING AND, THEREFORE, NO ADDIT ION SHOULD BE SUSTAINED FOR UNACCOUNTED SALES AND ADDITION OF RS. 3,50,000/- BE DELETED. 7. LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIE S. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THIS GROUND IS THAT ASSESSE E HAS SOLD GOODS COSTING RS. 8,05,578/- (BEING BROUGHT FORWARD FROM PREVIOUS YEAR) AND SOLD AT RS.4,42,831. HOWEVER, LD. AO WAS NOT SA TISFIED WITH THE ITA NO. 821 & 551 EMTICI ENGINEERING LTD. ASST. YEAR 2002-03 5 SUBMISSIONS OF ASSESSEE AND WAS OF THE VIEW THAT SA LES HAVE BEEN SUPPRESSED AND ACCORDINGLY MADE ADDITION OF RS.3,26 ,747/- WHICH WAS THEREAFTER RESTRICTED BY LD. CIT(A) TO RS.3,50, 000/-. FROM THE FINANCIAL RECORDS OF THE ASSESSEE WE OBSERVE THAT A SSESSEE IS A LIMITED COMPANY AND IS REGULARLY FILING ITS RETURN AND ACCOUNTS ARE AUDITED UNDER THE COMPANIES ACT, 1956 AS WELL AS UN DER INCOME-TAX ACT, U/S 44AB. ASSESSEES GROSS TURNOVER FOR THE YE AR UNDER APPEAL WAS APPROXIMATELY 10.31 CRORES AND PROFIT BEFORE TA X SHOWN AT RS.48.94 LACS. FROM PERUSAL OF THE AUDITED PROFIT A ND LOSS ACCOUNT WE FIND THAT DURING FINANCIAL YEAR 2000-01 SALE OF GOO DS SHOWN BY ASSESSEE WAS RS.30,02,465/- AND SALE OF GOODS DURIN G THE YEAR UNDER APPEAL IN F.Y. 2001-02 AT RS.4,42,831/-. THIS SALE OF RS.4,42,831/- IS THE ONLY SALE SHOWN BY THE ASSESSE E WHICH HAS ARISEN OUT OF SALE OF OLD STOCK OF RS.8,05,578/-. H OWEVER, TOTAL TURNOVER OF THE ASSESSEE HAS INCREASED FROM RS.9.66 CRORES IN THE YEAR 2000-01 TO RS.10.31 CRORES FOR F.Y.2001-02 WHI CH INCLUDES OTHER INCOME ALSO. ASSESSEES MAIN SOURCE OF TURNOV ER IS COMMISSION AND COMPENSATION AS WELL AS SERVICES, FABRICATION A ND ERECTION WORK. 9. WE ARE FURTHER OF THE VIEW THAT LOOKING TO THE T OTAL FINANCIAL EXPOSURES OF THE COMPANY IN LIEU OF GROSS TURNOVER, PROFIT FOR THE YEAR, SHARE CAPITAL RESERVE AND SURPLUS ETC. AND ABOVE AL L WHEN ALL THE BOOKS OF ACCOUNTS ARE AUDITED THEN RAISING DOUBT ON A TRANSACTION WHICH HAS BEEN CARRIED OUT IN THE NORMAL COURSE OF BUSINESS THEN IT WAS NOT CORRECT ON THE PART OF THE ASSESSING OFFICE R TO DOUBT ABOUT THE TRANSACTION OF A MEAGRE AMOUNT WITHOUT BRINGING ON RECORD ANY EVIDENCE IN RESPECT OF TRANSACTIONS OF SUPPRESSED S ALES. ASSESSING ITA NO. 821 & 551 EMTICI ENGINEERING LTD. ASST. YEAR 2002-03 6 OFFICER SHOULD HAVE APPRECIATED THAT BUSINESS IS CA RRIED ON BY ITS MANAGEMENT WHICH HAS TO LOOK AFTER ITS DAY TO DAY A CTIVITIES AND CERTAINLY WHIMSICAL DOUBT SHOULD NOT BE RAISED ABOU T A TRANSACTION THAT GOODS COSTING OF RS.8,05,578/- WOULD BE SOLD A T A SUPPRESSED VALUE OF RS.4,42, 831/-. WHEN THE GOODS ARE THREE YEARS OLD AND ARE OF NO REGULAR USE BY THE COMPANY AND ALSO THE FACT THAT THERE IS NO OTHER SALE OF PRODUCTS OF THE COMPANY THEN CERTAINL Y THIS TRANSACTION WOULD HAVE OCCURRED IN A NORMAL COURSE OF BUSINESS. WE DO NOT FIND ANY REASON IN DISBELIEVING THE ASSESSEE. WE, THEREF ORE, DELETE THE ADDITION OF RS.3,50,000/- AND ALLOW THIS GROUND OF THE APPEAL. 10. NOW WE TAKE UP GROUND NO.2 REGARDING DISALLOWAN CE OF RS.3,58.015/- ATTRIBUTABLE TO INVESTMENTS IN SHARES . LD. AR SUBMITTED THAT THERE WAS NO MAJOR INVESTMENT DURING THE YEAR AND THE INVESTMENT IN SHARES AND SECURITIES HAVE INCREASED BY RS.15,600/-. LD. AR ALSO REFERRED TO THE SCHEDULE OF INVESTMENTS COMPARING THEM WITH F.Y. 2000-01 WHICH SHOWS THAT ALL THE INVESTME NTS REMAINED THE SAME EXCEPT FOR ADDITION OF RS.15,600/- AND THESE I NVESTMENTS WERE MADE BEFORE MANY YEARS AND THE SOURCE OF INVESTMENT OF THESE INVESTMENTS WAS FROM CAPITAL AND FREE RESERVE AND S URPLUS HELD BY THE COMPANY AND THERE HAS BEEN NO USE OF INTEREST B EARING FUNDS FOR THESE INVESTMENTS. LD. AR FURTHER SUBMITTED THAT IN ASSESSEES OWN CASE FOR ASST. YEAR 1984-85 SIMILAR ISSUE WAS TAKEN IN ITA NO.2007/AHD/1998 AND THE GROUND RAISED BY REVENUE W AS DISMISSED BY THE CO-ORDINATE BENCH BY OBSERVING AS UNDER :- ITA NO. 821 & 551 EMTICI ENGINEERING LTD. ASST. YEAR 2002-03 7 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, FACTS AND MATERIALS ON RECORD. IN OUR VIEW, IF THE INCOME FROM THE DIVIDEN D IS A PART OF BUSINESS INCOME OF THE ASSESSEE ONLY BECAUSE IT IS TO BE ASS ESSED UNDER DIFFERENT HEAD THE INTEREST PAID FOR THE MONEY BORROWED FOR T HE PURPOSE OF BUSINESS CAN ONLY BE CONSIDERED U/S 36(1)(III) OF THE ACT IR RESPECTIVE OF THE FACT THAT INCOME FROM THE DIVIDEND CAN ONLY BE ASSESSED AS OT HER SOURCE AT THE MANDATE OF THE ACT. WE THEREFORE, CONFIRM THE ORDER OF THE LD. CIT(A) ON THE ABOVE BASIS. 11. ABOVE DECISION WAS APPLIED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO.1129/AHD/1994 FOR ASS T. YEAR 1990- 91 AND 1214/AHD/1995 FOR ASST. YEAR 1991-92 AND ADD ITION ON ACCOUNT OF DISALLOWANCE OF INTEREST WAS DELETED. LD . AR FURTHER SUBMITTED THAT NO SATISFACTION WAS RECORDED BY THE ASSESSING OFFICER BY WAY OF PROVING THAT INTEREST BEARING FUNDS IN PR EVIOUS YEARS HAVE BEEN UTILIZED FOR THE PURPOSE OF INVESTMENTS IN SHA RES. 12. THE LD. DR ALONG WITH RELYING ON THE ORDER OF L D. CIT(A) ALSO REFERRED TO THE DECISION OF HON. CALCUTTA HIGH COUR T IN THE CASE OF DHANUKA & SONS VS. CIT(CENTRAL)-1, [2011] 12 TAXMAN N.COM 227 (CAL) WHEREIN IT WAS OBSERVED THAT IT WAS FOR THE A SSESSEE TO SHOW BY THE PRODUCTION OF DOCUMENTARY EVIDENCE THAT NO INTE REST BEARING FUNDS WERE USED FOR ACQUIRING EQUITY SHARES. IT WAS FURTHER HELD IN THE ABSENCE OF ANY MATERIAL DISCLOSING THE SOURCE OF AC QUISITION OF SHARES WHICH IS WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESS EE, THE ASSESSING AUTHORITY TOOK A MOST REASONABLE APPROACH IN ASSESS MENT BY WAY OF DISALLOWING PROPORTIONATE AMOUNT OF INTEREST. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THIS GROUND IS FOR PROPORTI ONATE DISALLOWANCE ITA NO. 821 & 551 EMTICI ENGINEERING LTD. ASST. YEAR 2002-03 8 OF INTEREST ATTRIBUTABLE TO THE INVESTMENT IN SHARE S WHICH GIVES EXEMPT INCOME TO THE ASSESSEE. FROM PERUSAL OF RECORDS, WE FIND THAT DURING THE YEAR UNDER APPEAL NO MAJOR INVESTMENT HAS BEEN MADE AND MOST OF THE INVESTMENTS APPEARING IN THE BALANCE SHEET S EEMS TO HAVE BEEN ACQUIRED IN PAST MANY YEARS WHICH IS EVIDENT FROM VARIOUS ORDERS OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASST, YEAR 1984-85, 1990-91, 1991-92 AND ALSO AS SUBMITTED BY ASSESSEE THAT THE SAME ISSUE HAS BEEN DEALT FOR ASST. YEARS 1985- 86, 1987-88 AND 1992-93 AND IN ALL THESE YEARS CO-ORDINATE BENCH HA S DELETED THE ADDITION OF PROPORTIONATE DISALLOWANCE. THE YEAR UN DER APPEAL IS ASST. YEAR 2002-03. SECTION 14A WAS INSERTED BY FIN ANCE ACT 2001 WITH RETROSPECTIVE EFFECT FROM 1.4.1962 WHICH RELAT ES TO DISALLOWANCE OF INTEREST AND OTHER EXPENDITURE WHICH HAVE BEEN I NCURRED FOR EARNING EXEMPT INCOME. FROM GOING THROUGH THE PROVI SIONS OF SECTION 14A, WE ARE OF THE VIEW THAT IT WAS FOR THE ASSESSI NG OFFICER TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE INCURRED I N RELATION TO THE EXEMPT INCOME AND IT WAS A DUTY CASTED UPON THE ASS ESSING OFFICER TO TAKE RELEVANT INFORMATION FROM THE ASSESSEE WHIC H MAY RELATE TO THE YEAR UNDER ASSESSMENT OR FOR THE PREVIOUS YEAR AND TO EXTRACT THE RELATED EVIDENCES TO SUPPORT HIS OBSERVATIONS THAT INTEREST BEARING FUNDS HAD NOT BEEN UTILIZED IN A PARTICULAR YEAR FO R MAKING INVESTMENT IN SHARES AND THE INTEREST DURING THE YEAR UNDER AP PEAL HAS BEEN PAID ON THE SAME SOURCE OF INTEREST BEARING FUNDS WHICH WAS USED FOR MAKING INVESTMENT IN SHARES. FROM GOING THROUGH THE ASSESSMENT ORDER, WE FIND THAT NO SUCH EXERCISE HAS BEEN CARRI ED OUT BY THE ASSESSING OFFICER. ITA NO. 821 & 551 EMTICI ENGINEERING LTD. ASST. YEAR 2002-03 9 14. FURTHER IN VARIOUS JUDGMENTS OF HON. APEX COUR T AND HON. JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TO RRENT POWER LTD. 363 ITR 474 (GUJ) - SECTION 14A OF THE INCOME-TAX ACT, 1961 - EXPENDITU RE INCURRED IN RELATION TO INCOME NET INCLUDIBLE IN TOTAL INCOME (INTEREST - N ON-USER OF BORROWED FUNDS) - ASSESSMENT YEAR 2006-07 - FOR RELEVANT YEAR, ASSESS EE FILED ITS RETURN DECLARING EXEMPT INCOME BEING INTEREST ON BONDS, EXEMPTED UND ER SECTION 10(15) AND DIVIDEND INCOME EXEMPT UNDER SECTION 10(23D) - ASSE SSING OFFICER HAVING INVOKED PROVISIONS OF SECTION 14A. DISALLOWED ONE P ER CENT OF INTEREST EXPENSES INCURRED FOR EARNING EXEMPT INCOME - TRIBUNAL DELETED SAID DISALLOWANCE - WHETHER IN VIEW OF FACT THAT ASSESSEE HAD SUFFICIENT FUNDS FOR MAKING INVESTMENTS AND IT HAD NOT USED BORROWED FUNDS FOR SUCH PURPOSE, IMPUG NED ORDER PASSED BY TRIBUNAL DELETING DISALLOWANCE WAS TO BE UPHELD - H ELD, YES [PARA 7] [IN FAVOUR OF ASSESSEE] FACTS FOR THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE FILE D ITS RETURN SHOWING EXEMPT INCOME BEING FAX FREE IMEREST ON BONDS, EXEMPTED UNDER SEC TION I OF I5J AND DIVIDEND EXEMPT UNDER SECTION IO(23DI. THE TOTAL SUM WORKED OUT TO KS, J4 CRORCS. THE ASSESSING OFFICER HAVING INVOKED THE PROVISIONS OF SECTION 14A. DISALLOWED ONE PERCENT OF INTEREST EXPENSES INCURRED FOR EARNING E XEMPT INCOME, IN APPELLATE PROCEEDINGS, THE TRIBUNAL DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. ON REVENUE'S APPEAL: HELD IF WAS NOTED FROM RECORDS THAT THE ASSESSEE WAS HAV ING SHARE HOLDING FUNDS TO THE EXTENT OF 2607.18 CRORES AND THE INVESTMENT MADE BY IT WAS TO THE EX TENT OF RS. 195.10 CRORES. IN OTHER WORDS, THE ASSESSEE HAD SUFFICIENT FUNDS F OR MAKING THE INVESTMENTS AND IT HAD NOT USED THE BORROWED FUNDS FOR SUCH PURPOSE. THIS ASPECT OF HUGE SURPLUS FUNDS IS NOT DISPUTED BY THE REVENUE WHICH EARNED IT THE INTERES T ON BONDS AND DIVIDEND INCOME. WITH REGARD TO DISALLOWANCE OF 1% OF ADMINISTRATIVE EXPENSES AVERRED TO HAVE INCURRED ON ACCOUNT OF IHE EARNING OF INTEREST, THERE IS NOT HING ON RECORD TO INDICATE THAT THERE HAS BEEN IN FACT ANY ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING TAX FREE INCOME OF RS.I4 CRORES. IT IS ALSO TO BE NOTED THAT OUT OF THE TOTAL AMOUNT OF EXEMPT INCOME OF RS. 14 CRORES, THE ASSESSEE COULD POINT OUT THAT 6.12 C RORES (ROUNDED OIL) WAS EARNED BY 'S' PROJECT WHICH WAS UNDER CONSTRUCTION FOR WHICH NO E XPENDITURE HAD BEEN CLAIMED AND FOR THE REMAINING INCOME OF RS.7.88 CRORES WHICH CONSIS TS OF DIVIDEND AND TAX FREE INTEREST, NO PART OF EXPENDITURE APPEARS TO HAVE BEEN MADE TO WARDS THE INVESTMENT ACTIVITY AS EMERGING FROM THE MATERIAL. ACCORDING TO THE RESPON DENT, THE TOTAL INVESTMENT FROM THE ITA NO. 821 & 551 EMTICI ENGINEERING LTD. ASST. YEAR 2002-03 10 HUGE SURPLUS IS COMPARATIVELY SMALL AND INVESTMENT MADE WAS EFFORTLESS, WITHOUT ANY BURDEN OF ADMINISTRATIVE EXPENSES. IN VIEW OF FACT THAT NO EXPENDITURE WAS INCUR RED FOR EARNING EXEMPTED INCOME AND THAT BEING THE QUESTION OF FACT, DISALLOWANCE OF 1% OF I NTEREST EXPENDITURE ARTIFICIALLY OR ON THE BASIS OF ASSUMPTION RIGHTLY HAS NOT BEEN SUSTAI NED BY THE TRIBUNAL. THE REVENUE'S APPEAL THEREFORE, REQUIRES NO FURTHER ENTERTAINMENT AND HENCE DISMISSED. EXAMINING THE FACTS OF THE CASE OF ASSESSEE IN THE LIGHT OF ABOVE DECISION OF HON. JURISDICTIONAL HIGH COURT IN THE C ASE OF TORRENT POWER LTD. (SUPRA), WE FIND THAT ASSESSEE IS HAVING A CAPITAL RESERVE AND SURPLUS BASIS OF RS.9.25 CRORES AND THE BROUGHT FORWARD INVESTMENT AS ON 31.3.2002 IS RS.3.66 CRORES AND IT CAN BE EASILY INFERRED FROM THE FIGURES THAT ASSESSEE WAS HAVING SUFFICIENT SOURCE OF CAPITAL AND RESERVE AND SURPLUS WHICH MIGHT HAVE BEEN UTILIZED FOR THE INVESTMENTS. IN LACK OF ANY OTHER EVIDENCE BROU GHT ON RECORD BY THE REVENUE AS WELL AS RESPECTFULLY FOLLOWING THE D ECISION OF JURISDICTIONAL HIGH COURT AND DECISION OF CO-ORDINA TE BENCH FOR VARIOUS YEARS IN ASSESSEES OWN CASE, WE ARE OF THE THAT NO DISALLOWANCE SHOULD HAVE BEEN MADE FOR INTEREST AT RS.3,58,015/- IN THE CASE OF ASSESSEE AND WE DELETE THE SAME. ACCORD INGLY, WE ALLOW THIS GROUND OF ASSESSEE. 15. OTHER GROUND IS GENERAL IN NATURE, WHICH NEEDS NO ADJUDICATION. 16. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 17. NOW WE TAKE UP ITA NO.551/AHD/2013 FOR ASST. YEAR 2002-03 ITA NO. 821 & 551 EMTICI ENGINEERING LTD. ASST. YEAR 2002-03 11 AGAINST IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT, WHEREIN FOLLOWING GROUNDS HAVE BEEN RAISED :- 1) YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PAS SED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL-IV)BARODA U/S 271 (L)(C) PRESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOW ING AMONGST OTHER GROUNDS. 2) THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL-IV)BARODA IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS. IT IS SUBMITTED THAT THE SAME IS TO BE HELD SO NOW. 3) THE LEARNED THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL- IV)BARODA HAS ERRED IN PASSING THE ORDER U/S 271(L) (C)AND CONFIRMING THE PENALTY FOR RS.L,25,000/-.ON THE ISSUE OF UNACC OUNTED SALE RS. 3,62,747/-[442831-805578/-] AS DISCUSSED ON PARA NO . 9. 2 AND 10 OF THE APPEAL ORDER. THE APPELLANT SUBMITS THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE PENALTY SHOULD NOT BE LEV IED. 18. PENALTY WAS IMPOSED BY ASSESSING OFFICER AT RS. 1,25,000/- VIDE HIS ORDER DATED 28.3.2011 FOR THE ADDITIONS SU STAINED BY LD. CIT(A) RELATING TO UNACCOUNTED SALES OF RS.3,50,000 /-. ON APPEAL LD. CIT(A) CONFIRMED THE PENALTY IMPOSED U/S 271(1)(C) OF THE ACT. 19. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 20. WE WOULD LIKE TO MENTION HERE THAT WE HAVE ALRE ADY DEALT WITH THE QUANTUM ISSUE RELATING TO ADDITION OF RS.3,50,0 00/- IN ITA NO.821/AHD/2010 FOR ASST. YEAR 2002-03 AND HAVE DEL ETED THE IMPUGNED ADDITION. AS THE QUANTUM ADDITION WHICH WA S THE BASIS FOR IMPOSITION OF PENALTY OF RS.1,25,000/- UNDER SECTI ON 271(1)(C), HAS BEEN DELETED THEN THERE REMAINS NO GROUND FOR IMPOS ITION OF PENALTY ITA NO. 821 & 551 EMTICI ENGINEERING LTD. ASST. YEAR 2002-03 12 AND ACCORDINGLY, WE DELETE THE SAME. THE APPEAL OF ASSESSEE IS ALLOWED. 21. IN THE RESULT, BOTH THE APPEALS OF ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH FEBRUARY, 2016 SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 29/02/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 821 & 551 EMTICI ENGINEERING LTD. ASST. YEAR 2002-03 13 1. DATE OF DICTATION: 18/02/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 25/02/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 29/2/2016 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: